LME Warehouse Proposal Feedback 'Very Divergent'
LONDON--The range of views received by the London Metal Exchange on its proposed alteration to its warehousing rules could leave some stakeholders unhappy when a final decision is made, the chief executive of the LME's owner Hong Kong Exchanges & Clearing Ltd. (0388.HK) said Monday.
HKEx chief executive Charles Li also said there is a chance some changes may be made to the proposed rulebook alterations when the LME's board meets to review the consultation feedback and vote of the proposal later this month.
"Its a very exhaustive consultation and altogether we have had close to 70 meetings in London, Asia and also in the United States. We have heard a lot from everybody [and] we have listened," Mr. Li told a seminar hosted by the London metals bourse during the annual LME Week gathering.
"The views are very, very divergent; between people applauding everything we are doing, against people who actually say whatever you do is not going to make a difference, and against other people saying that you are not doing enough."
The LME began the three month consultation exercise after receiving numerous complaints about delivery times from metal end users. Warehouse queues materialized after metals like aluminum became a financing tool in the wake of the global financial crisis. Producers pledged metal to traders and banks to raise capital, locking aluminum up in warehouses, and causing load-out queues when metal was requested. Cheap financing and futures prices exceeding current prices meant banks or traders holding the metal could lock in profit.
Some companies making products out of metal have complained of facing a hard time accessing the material they need, particularly in times of high demand, when they might usually go to LME-listed warehouses as a last resort. Manufacturers have had to wait months for delivery of the metal they ordered from the LME warehouses where it was stored. Meanwhile, they have to pay rent to the warehouse company storing it.
In July, the LME said it wanted to require warehouses experiencing delivery waits of more than 100 days to release more metal than they take in, effective from next April. Under current rules, the largest warehouses must deliver at least 3,000 tons of metal a day, with no limit on the amount they accept.
The consultation period ended Sept. 30, and the LME board meets later this month to vote on the proposed changes. Many market participants are skeptical that the LME's proposal will resolve the problem.
In the past, the LME said the warehousing problems dogging the industry have been an inevitable symptom of the global economic environment, and that the exchange's ability and responsibility to address the controversial issue was limited.
"There are very broad macroeconomic factors that are driving a lot of the issues that are plaguing some parts of the market, and the LME rules may or may not be part of that," Mr. Li said.
Mr. Li said that the final ruling on the proposed changes would be "the best that is good for the broader market, but not necessarily good for everybody." He also said the guise of the rule changes that are finally enforced will be up for discussion at the board meeting.
"We will make a decision once we completely review the consultation and then see whether or not there are any changes that we will make," he said. "Just to be clear, no matter what changes you make.. not everyone is going to walk out of the room happy about it. But one thing I'm very confident [about] is that we have heard everything that could possibly come from the market."
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(END) Dow Jones Newswires 10-07-130915ET Copyright (c) 2013 Dow Jones & Company, Inc.